Themis Avraamides & Anor v Colwill & Anor

Under the Contracts (Rights of Third Parties) Act 1999, a third party may enforce a contractual term only if the statutory requirements are met. Section 1(3) requires express identification by name, as a member of a class, or by a particular description. That requirement cannot be satisfied by construction or implication. An undertaking by purchasers to pay a company’s liabilities properly incurred may benefit creditors, but does not itself identify those creditors or an ascertainable class. The undertaking is not limited to customer liabilities. Where the written agreement is not made with the company, direct enforcement is less readily inferred. The appeal was therefore allowed.

The respondents claimed against the appellants personally for defects in the refurbishment of two bathrooms. A preliminary issue was ordered concerning contractual liability and any concurrent duty of care in tort. The Central London County Court held that the refurbishment contract was with Bathroom Trading Company (Putney) Limited, but allowed the respondents to rely alternatively on the Contracts (Rights of Third Parties) Act 1999. The judge considered that a transfer agreement, under which the appellants undertook to pay the company’s outstanding liabilities, conferred a benefit on the respondents. The appeal concerned whether the respondents were sufficiently identified as third parties entitled to enforce that agreement.

Appeal allowed. Lord Justice Waller gave the principal judgment and Lord Justice Leveson agreed.

1. The critical provision was paragraph 3 of the transfer agreement. It required the purchasers to complete outstanding customer orders and to pay, in the normal course, liabilities properly incurred by the company as at 31 March 2003.
2. There could be a distinction between liabilities incurred and liabilities properly incurred, but there was nothing improper about the liabilities owed to the respondents. On its natural reading, the obligation to pay liabilities properly incurred was not confined to customers. It could include liabilities to suppliers, telephone providers and others.
3. Section 1(3) of the Contracts (Rights of Third Parties) Act 1999 requires the third party to be expressly identified by name, as a member of a class, or as answering a particular description. The use of “express” excludes supplying identification by construction or implication. Although “customers” were identified in the first part of paragraph 3, the separate obligation to pay liabilities properly incurred benefited a large number of unidentified classes. The respondents therefore failed to satisfy section 1(3).
4. The court was also doubtful whether, on the true construction of the agreement, persons with rights against the company were intended to enforce those rights directly against the appellants, since the written agreement was between the appellants and the shareholders rather than the company.
5. Waller LJ observed that, where a point was considered unpleaded, the court should require an amendment and consider its fairness, any necessary amendment to the preliminary issue, and the cost consequences. That procedural observation was not necessary to the disposition.

• Court of Appeal (Civil Division): allowed the appeal. The court held that the respondents could not enforce the transfer agreement under section 1(3) of the Contracts (Rights of Third Parties) Act 1999.
• Central London County Court: His Honour Judge Dean QC held that the refurbishment contract was with Bathroom Trading Company (Putney) Limited, but gave judgment for the respondents on the alternative statutory claim.